Skip to main content

Subscription Choices and Switching Costs in Mobile Telephony

Review of Industrial Organization volume 38, pages 23–42 (2011)Cite this article

Abstract

In this article, we estimate the price elasticities of demand for subscription and consumer switching costs for mobile telephony. We use a panel data of Portuguese consumers to estimate a series of multinomial and mixed logit models. The demand for subscription is found to be elastic and switching costs are large. We use the structural model to perform several policy exercises. Switching costs and brand preferences are shown to be important elements of the market structure of mobile telephony. Price mediated network effects seem to be relatively less important.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

References

  • Amante, A., & Vareda, J. (2010). Switching costs in the Portuguese telecoms sector: results. Portuguese Competition Authority, unpublished.

  • Ben-Akiva M., McFadden D. L., Train K. E. (1987) The demand for local telephone service: A fully discrete model of residential calling patterns and service choices. Rand Journal of Economics 18(1): 109–123

    Article  Google Scholar 

  • Chen, P.-Y., & Forman, C. (2003). Switching costs and network effects in the market for routers and switches. Net Institute Working article #03–03.

  • Epling, N. (2002). Price discrimination amid heterogeneous switching costs: A competitive tactic of the telephony resale fringe. Yale University, unpublished.

  • Farrell J., & Klemperer, P. (2007). Coordination and lock-in: Competition with switching costs and network effects. In M. Armstrong & R. Porter (Eds.), Handbook of industrial organization (pp. 1970–2056). North-Holland.

  • Goldfarb A. (2006) State dependence at internet portals. Journal of Economics and Management Strategy 15: 317–352

    Article  Google Scholar 

  • Grzybowski L. (2007) Estimating switching costs in mobile telephony in the UK. Journal of Industry, Competition and Trade 8(2): 113–132

    Article  Google Scholar 

  • Grzybowski L., Pereira P. (2007) Simulation of merger in mobile telephony in Portugal. Review of Industrial Organization 31(3): 205–220

    Article  Google Scholar 

  • Grzybowski L., Pereira P. (2008) Complementarity between calls and messages in mobile telephony. Information Economics and Policy 20(3): 279–287

    Article  Google Scholar 

  • Grzybowski L., Pereira P. (2009) The consumer loss of the minimum duration for mobile telephone calls. Telecommunications Policy 33(3–4): 200–206

    Article  Google Scholar 

  • Heckman J. (1981) Statistical models for discrete panel data. In: Manski C. F., McFadden D. (eds) Structural analysis of discrete data with econometric applications. The MIT Press, Cambridge, MA, pp 179–195

    Google Scholar 

  • Heitfield E., Levy A. (2001) Parametric, semi-parametric and non-parametric models of telecommunications demand: An investigation of residential calling patterns. Information Economics and Policy 13(3): 311–329

    Article  Google Scholar 

  • Kim, J. (2006). Consumers’ dynamic switching decisions in the cellular service industry. NET Institute Working article #06–24.

  • Knittel C. (1997) Interstate long distance rates: Search costs, switching costs and market power. Review of Industrial Organization 12: 519–536

    Article  Google Scholar 

  • Kridel D., Rappoport P., Taylor L. (2002) IntraLATA long-distance demand: Carrier choice, usage demand and price elasticities. International Journal of Forecasting 18(4): 545–559

    Article  Google Scholar 

  • Lee J., Kim Y., Lee J. D., Park Y. (2006) Estimating the extent of potential competition in the Korean mobile telecommunications market: Switching costs and number portability. International Journal of Industrial Organization 24: 107–124

    Article  Google Scholar 

  • NERA (2003). Switching costs. A report prepared for the office of fair trading and the department of trade and industry. Economic Discussion Paper 5.

  • Rodini M., Ward M., Woroch G. (2003) Going mobile: Substitution between fixed and mobile access. Telecommunications Policy 27(5): 457–476

    Article  Google Scholar 

  • Shum M. (2004) Does advertising overcome brand loyalty? evidence from the breakfast-cereals market. Journal of Economics and Management Strategy 13(2): 241–272

    Article  Google Scholar 

  • Small K. A., Rosen H. S. (1981) Applied welfare economics with discrete choice models. Econometrica 49: 105–130

    Article  Google Scholar 

  • Train K. (2003) Discrete choice methods with simulation. Cambridge University Press, Cambridge, MA

    Book  Google Scholar 

  • Viard V. B. (2005) Do switching costs make markets more or less competitive?: The case of 800-number portability. RAND Journal of Economics 38(1): 146–163

    Article  Google Scholar 

  • Wooldridge J. M. (2005) Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity. Journal of Applied Econometrics 20: 39–54

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Economics, Faculty of Commerce, University of Cape Town, Private Bag, Rondebosch, 7701, South Africa

    Lukasz Grzybowski

  2. Autoridade da Concorrência, Rua Laura Alves, no 4, 6°, 1050-188, Lisboa, Portugal

    Pedro Pereira

Authors
  1. Lukasz Grzybowski
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Pedro Pereira
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Lukasz Grzybowski.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Grzybowski, L., Pereira, P. Subscription Choices and Switching Costs in Mobile Telephony. Rev Ind Organ 38, 23–42 (2011). https://doi.org/10.1007/s11151-011-9275-y

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11151-011-9275-y

Keywords

  • Mobile telephony
  • Switching costs
  • Mixed logit

JEL Classification

  • L13
  • L43
  • L93